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A Comment on the Place of Funded Pensions in Transition Economies

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  • Georges de Menil

Abstract

Arguments are presented in the case of Eastern European transitioncountries for combining the restructuring of insolvent pay-as-you-goretirement systems with the introduction of mandatory, private,funded pensions. They involve the reduction of dead-weight loss,the return to formal activity of gray markets, and the developmentof capital markets. With the proper financing, such policiescan also increase national savings. Lack of public knowledgeabout financial instruments for saving argues for making participationin the private funds mandatory. A combination of a reformed pay-as-you-gosystem with private, mandatory funds balances concern for politicalrisk and real wage variability with concern for the variabilityof real financial returns. Animportant caveat is in order. Implementing such a policy requiresa capacity for effective enforcement of prudencial regulationsand a commitment to macroeconomic stability. If these are notpresent, reform should be limited to restoring balance to thepay-as-you-go system. Copyright Kluwer Academic Publishers 2000

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File URL: http://hdl.handle.net/10.1023/A:1008768918855
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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 7 (2000)
Issue (Month): 4 (August)
Pages: 431-444

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Handle: RePEc:kap:itaxpf:v:7:y:2000:i:4:p:431-444

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Web page: http://www.springerlink.com/link.asp?id=102915

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Keywords: pensions; reform; private pension funds; transition; capital markets;

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References

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  1. A. B. Atkinson, 1999. "The Economic Consequences of Rolling Back the Welfare State," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011719, December.
  2. Georges de Menil & Eytan Sheshinski, 2002. "Romania’s Pension System: From Crisis to Reform," NBER Chapters, in: Social Security Pension Reform in Europe, pages 401-438 National Bureau of Economic Research, Inc.
  3. Martin Feldstein, 1997. "The Missing Piece in Policy Analysis: Social Security Reform," NBER Working Papers 5413, National Bureau of Economic Research, Inc.
  4. Martin Feldstein, 1995. "Would Privatizing Social Security Raise Economic Welfare?," NBER Working Papers 5281, National Bureau of Economic Research, Inc.
  5. Peter A. Diamond, 1997. "Macroeconomics Aspects of Social Security Reform," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(2), pages 1-88.
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Cited by:
  1. Svend E. Hougaard Jensen & Jukka Lassila, 2002. "Reforming Social Security in a Transition Economy: The Case of Lithuania," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 5(1), pages 17-36.
  2. Georges de Menil & Eytan Sheshinski, 2002. "Romania’s Pension System: From Crisis to Reform," NBER Chapters, in: Social Security Pension Reform in Europe, pages 401-438 National Bureau of Economic Research, Inc.

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